28.12.17

Player Transfers: How former clubs can benefit from the future transfer of ex-players

Source: Canva

On 27 December 2017, Liverpool FC announced that they had reach an agreement with Southampton FC regarding the transfer of Virgil van Dijk (VVD). It is reported that Southampton have agreed to accept a £75m bid from Liverpool for the Netherlands International - a figure that got tongues wagging on social media, as well as those of former players. 

With significant sums being negotiated before the transfer window even opens, it is inevitable that clubs will continue to spend exorbitant sums of money, whilst breaking transfer fee records, in order to secure the most sought after players and compete on the biggest of stages. However whilst transfer fees continue to rise, former clubs (who lack the financial might of the richest clubs) can benefit from downstream compensation payments, thanks to provisions under the FIFA Regulations on the Status and Transfer of Players (RSTP), as well as the negotiation of effective sell-on clauses within their transfer agreements. The larger the transfer fees, the more former clubs are likely to gain in revenue. The latest example of this arises from the very transfer of VVD whose former club, Celtic, is expected to receive a healthy sum as a result of a sell-on clause that was included in the transfer agreement when VVD moved to Southampton back in 2015.

However, as demonstrated below, not all provisions will be available to clubs in the event of a future transfer of an ex-player - what provisions will be available to them will much depend on the type of transfer (international or domestic), the age of the player at the time of the transfer and the former club's involvement with the development and training of the player.

So what provisions may provide revenue to former clubs upon the future transfer of ex-players?

Sell on Clauses

Sell-on clauses are a crucial part of any transfer agreement and are highly recommended to selling clubs in order to avoid future disappointment in the event of a big money transfer, somewhere down the line. 

Sell-on clauses allow the selling club to retain the right to a percentage of the player's transfer fee, when he is transferred again from the new club to another club. Such clauses can generate significant future revenues for the selling club as the figure may also reflect a percentage share of any 'add-ons' within future transfer agreements, such as appearance and bonus fees.

The negotiations will usually depend on the bargaining power of each club at the time of drafting the transfer agreement, as well as the current financial circumstances of the selling club. For instance, the buying club may offer a large and attractive sell-on clause in exchange for a smaller transfer fee, thus saving money in the short-term. This can back fire in the long-term for the selling club, in the event that the player is a success and is transferred again for a significant sum. The prime example of this was in the case of Gareth Bale. Bale had previously played for Southampton who waived the option of a sell-on clause, in order to receive a larger up-front transfer fee, when they sold Bale to Tottenham Hotspur. We know how the rest of the story goes - Bale eventually moved to Real Madrid for a record breaking sum at the time, and Southampton missed out on a potential whopping £20m as a result of waiving the sell-on clause. Financial circumstances at the time had influenced Southampton's decision to waive the sell-on clause for a larger up-front transfer fee [read more here].

Sell-on clauses are the responsibility of the clubs and are not found under FIFA RSTP, unlike the next two provisions which are designed by FIFA to protect and award former clubs, whilst encouraging the development and training of youth football players.

Solidarity Mechanism

Article 21 of FIFA RSTP provides that each time a player is transferred before the end of his contract, a payment (known as a solidarity contribution) is owed to former clubs of which the player has been registered between the ages of 12 and 23. Former clubs can also include grassroots clubs.

The solidarity mechanism only applies to international transfers (a player transfer between two clubs of different national associations) but can come in very handy for former clubs in the event of a future transfer of an ex-player. The payment of solidarity contribution does not stop after the player turns a certain age and continues to be owed to all former clubs each time a player is transferred, so long as those clubs have been involved with the player's training/development between 12 and 23 years of age. An important point to note is that solidarity contribution is only due if the player moves during the course of his contract.

How does it work? FIFA RSTP states that 5% should be deducted from the total transfer fee and thereafter, distributed to the clubs involved in the training and education of players between 12 and 23 years of age. When calculating what proportion of the 5% solidarity contribution is owed to each club, the player's career history will be referred to via the Player Passport (an official document that details the periods of which a player has been registered with any given club), as well as the number of years spent at each club. The amount will be calculated pro-rata if the player has played for a former club less than one year. Payment must be made within 30 days of the date of registration of the player. [For further reading, see here and here]. 

An example of how the solidarity contribution works in practice can be found in the recent case of Neymar's transfer to PSG. Neymar trained with Santos but at the time of his transfer to PSG, he was over the age of 23 and thus out with the age range to receive any training compensation. However, Santos was still protected under the Solidarity Mechanism as they had been involved with the development and training of Neymar over a period of ten years from 2003-2013. They are reported to have received the equivalent of €9m from PSG thanks to their share of the 5% solidarity contribution.

Further, as discussed the contribution also applies to grassroots clubs and one such club in England, Wallsend Boys Club, received a significant sum as solidarity contribution when former goalkeeper, Fraser Forster, was transferred to Southampton Football Club, in the Premier League, back in 2015. The Club also received training compensation (described below) when Forster signed his first professional contract with Newcastle United. The benefits of such cash injections for grassroots clubs and the development of youth players require no explanation!

Solidarity contribution can also apply to players on loan as FIFA RSTP states that if a player is loaned to another club, that loan is subject to the same rules that apply to the transfer of players, including the provisions on solidarity contributions, meaning that the loaning club is entitled to payment.

Any disputes arising in relation to the payment of solidarity contribution can be submitted to FIFA DRC within the two year prescription period, the decisions of which can be appealed to the Court of Arbitration for Sport. If clubs do not file their dispute within the two year period (from date of event giving rise to complaint), the claim will become time-barred. It is essential therefore that clubs are keeping track of the movement of former players, and have a clear understanding as to when payments are due to them.

Training Compensation

It is prudent to touch upon training compensation, as it is often confused with the solidarity mechanism.

FIFA's training compensation system can be found under Article 20 of FIFA RSTP. FIFA places an obligation on the new club to pay a sum of training compensation to the player's former club when a player signs his first contract as a professional player and on each transfer thereafter (to every club that has contributed to the player's training up until the age of 21) until the end of the season of his 23rd birthday. A club will be generally considered a training club if they have developed and trained the player between the ages of 12 and 21 (however, FIFA DRC can determine the true age that training concludes). Clubs are compensated for the entire time that it trained the player and not only for the time it trained him, as a professional. A club may only receive an amount of training compensation once (contrary to the solidarity contributions described above).

The Player Passport is, again, important when calculating training compensation owed to former clubs. In assisting with the calculation of such compensation, FIFA instructs member associations to divide their clubs into four categories according to financial investment in training players. Training costs are fixed for each category and are representative of the amount required to train one player for one year, multiplied by a 'player factor' - which is the ratio between the number of players who need to be trained to produce one professional player. Training costs and category of clubs are updated annually and FIFA provides member associations with a list of the training costs, by confederation, for each category of club [read more here].

The obligation to pay training compensation stands regardless of whether the player has transferred during or after the expiry of his current contract. However, like solidarity contributions, training compensation is only payable when the transfer takes place between clubs of different national associations (an international transfer). The  exception is where national association rules provide for similar provisions upon domestic transfers, e.g. Irish Football Association in the event of a free transfer

With regards to the loan of players, FIFA RSTP states that if a player is loaned to another club, that loan is subject to the same rules that apply to the transfer of players, including the provisions on training compensation. Clubs are generally not entitled to receive training compensation for the period in which the player was loaned to the other club - unless the club can demonstrate that it incurred the costs for the player's training during the loan period (as per cases of Grasshopper v Alianza Lima CAS 2008/A/1705 and Dundee United FC v Club Atletico Velez Sarsfield CAS 2013/A/3119). Given that, in the event that Club A loans player to Club B, Club A would generally have the right to claim training compensation for the entire period of training and education provided prior to loan taking place [read more here].

Clubs should also be aware that FIFA's training compensation scheme is only applicable to men's football and not the women's game, as confirmed by a FIFA Dispute Resolution Chamber (DRC) Decision in 2011. The DRC came to this decision on the conclusion that the men and women's games were completely different from one another. Again, this is disappointing for the development of the women's game and more needs to be done to incentivise investment and training of youth female players. 

Any disputes arising in relation to the payment of training compensation can be submitted to FIFA DRC within the two year prescription period, the decisions of which are appealable to the Court of Arbitration for Sport. If clubs do not file their dispute within the two year period (from date of event giving rise to complaint), the claim will become time-barred. 

Conclusion

Whilst transfer fees spiral higher than ever before, clubs who don't pack the financial might of their counterparts have the opportunity to benefit by earning extra revenue from the transfers of ex-players. This is particularly true in the case of sell-on clauses and solidarity contributions, which have the potential to generate significant cash injections for clubs who may face ongoing financial difficulties - a problem tackled by many clubs across the globe, particularly in South America. Training Compensation also ensures downstream financial flows to former clubs encouraging investment in youth talent, something of which may be less attractive for clubs if the provisions of training compensation and solidarity contributions were not available to them.

However, more can still be done to protect former clubs, maintain financial stability and protect grassroots football. For instance, the solidarity mechanism only applies to international transfers. The exception to the rule is if the national association rules provide for similar provisions but the majority do not! In the case of VVD, his former clubs Willem II and Groningen will miss out on solidarity contributions because of the restrictions on domestic transfers. The same will apply again to the former clubs of Antoine Griezmann, if he were to move from Atletico Madrid to Barcelona, as per recent news reports. More can and should be done to ensure that training clubs do not miss out on these vital cash injections. National associations should be encouraged by FIFA and the Confederations to adopt similar provisions into their own rules and apply them to domestic transfers, to ensure that clubs who have spent significant time and money on the training of players do not miss out. Provisions such as the Solidarity Mechanism provide a useful tool in the battle for sustainability and are an important source of income for former clubs, especially those at grassroots level who find it increasingly difficult to raise funds to continue operating, each year.

Clubs should ensure that they are familiar with the rules governing training compensation and solidarity contributions, and keep a track on the movement of former players, and have a sound understanding as to when payments are due. Although, the transfer itself is supposed to trigger those payments, a number of clubs may require a nudge to fulfill their obligation. Clubs should keep in mind that there is a two year time limit (from the date of the event giving rise to the complaint) to pursue any dispute to FIFA DRC in relation to such payments, after which time the claim will become time-barred.


IMPORTANT: This post is not intended to be a legal briefing, it is not intended to be a statement of the law and no action should be taken in reliance on it without specific legal advice.


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